Question

Hemant and Shiva were in partnership sharing profits and losses in the ratio of 3 : 1.

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		84,000	Land and Building		52,500
General Reserve		8,400	Furniture		4,200
Capital A/cs:			Stock		42,000
Hemant	63,000	96,600	Debtors		42,000
Shiva	33,600		Bills Receivable		27,300
			Cash at Bank		21,000
		1,89,000			1,89,000

They decided to admit Aum on 1st April, 2023 on the following terms:

(1) He should be given I/5th share in profit and for that he brought in ₹ 42,000 as capital through RTGS.

(2) Goodwill should be raised at ₹ 42,000.

(3) Appreciate Land and Building by 20%.

(4) Furniture and Stock are to be depreciated by 10%.

(5) The capitals of all partners should be adjusted in their new profit sharing ratio through Bank A/c.

Prepare necessary accounts and Balance Sheet of new firm.

Answer 1

Dr.	Profit and Loss Adjustment Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Furniture A/c		420	By Land and Buildings A/c		10,500
To Stock A/c		4,200
To Profit on Revaluation Transferred to Partner's Capital A/c
Hemant	4,410
Shiva	1,470	5,880
		10,500			10,500

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	Hemant (₹)	Shiva (₹)	Aum (₹)	Particulars	Hemant (₹)	Shiva (₹)	Aum (₹)
To Bank A/c	-	5,670	-	By Balance b/d	63,000	33,600	-
To Balance c/d	1,26,000	42,000	42,000	By Bank A/c	-	-	42,000
				By Goodwill A/c	31,500	10,500	-
				By General Reserve A/c	6,300	2,100	-
				By Profit and Loss Adjustment A/c (Profit)	4,410	1,470
				By Bank A/c	20,790	-	-
	1,26,000	47,670	42,000		1,26,000	47,670	42,000

 

Dr.	Bank Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	21,000	By Shiva’s Capital A/c	5,670
To Aum’s Capital A/c	42,000	By Balance c/d	78,120
To Hemant’s Capital A/c	20,790
	83,790		83,790

 

Balance Sheet as on 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital Accounts:			Land and Building	52,500	63,000
Hemant	1,26,000	2,10,000	Add: Appreciation (20 %)	10,500
Shiva	42,000		Furniture	4,200	3,780
Aum	42,000		Less: Depreciation (10 %)	420
Creditors		84,000	Stock	42,000	37,800
			Less: Depreciation (10 %)	4,200
			Debtors		42,000
			Goodwill		42,000
			Bills Receivable		27,300
			Cash at Bank		78,120
		2,94,000			2,94,000

Working notes:

(1) Calculation of new profit sharing ratio: New Ratio = (Balance of 1) × (Old ratio)

Hemant’s New ratio = `(1 - 1/5) xx 3/4 = 4/5 xx 3/4 = 3/5`

Shiva’s New ratio = `(1 - 1/5) xx 1/4 = 4/5 xx 1/4 = 1/5`

Aum’s share = `1/5` ∴ New ratio of partners = `3/5 : 1/5 : 1/5 = 3 : 1 : 1`

(2) Total capital of the firm = (Reciprocal of Aum’s ratio) × (Aum’s capital contribution)

`= 5/1 xx 42,000 =  ₹ 2,10,000`

Hemant’s new closing capital balance = `2,10,000 xx 3/5 = ₹ 1,26,000`

Shiva’s new closing capital balance = `2,10,000 xx  1/5 =  ₹ 42,000`

Aum’s capital balance = ₹ 42,000